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DRIPs and the Dividend Pay Date Effect

Author

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  • Berkman, Henk
  • Koch, Paul D.

Abstract

On the day that dividends are paid, we find a significant positive mean abnormal return that is completely reversed over the following days. This dividend pay date effect has strengthened since the 1970s and is consistent with the temporary price pressure hypothesis. The pay date effect is concentrated among stocks with dividend reinvestment plans (DRIPs) and is larger for stocks with a higher dividend yield, greater DRIP participation, and greater limits to arbitrage. Over time, profits from a trading strategy that exploits this behavior are positively related to the dividend yield and spread and negatively associated with aggregate liquidity.

Suggested Citation

  • Berkman, Henk & Koch, Paul D., 2017. "DRIPs and the Dividend Pay Date Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1765-1795, August.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:04:p:1765-1795_00
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    Cited by:

    1. Nicolas Eugster & Romain Ducret & Dušan Isakov & Jean‐Philippe Weisskopf, 2022. "Chasing dividends during the COVID‐19 pandemic," International Review of Finance, International Review of Finance Ltd., vol. 22(2), pages 335-345, June.
    2. Feito-Ruiz, Isabel & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Elective stock and scrip dividends," Journal of Corporate Finance, Elsevier, vol. 64(C).
    3. Han, Dun & Han, Liyan & Wu, Yanran & Liu, Pei, 2021. "Dividend or growth funds: What drives individual investors' choices?," International Review of Financial Analysis, Elsevier, vol. 77(C).

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